Hidden Charges in EMI Plans: What You Need to Know

Equated Monthly Installments (EMIs) have made it easier for consumers to purchase high-value items like smartphones, laptops, appliances, and even cars. While EMI plans provide financial convenience, many buyers are unaware of the hidden charges that come with them.

These additional costs can significantly impact the total repayment amount, making the purchase more expensive than expected. In this article, we break down the hidden charges in EMI plans and what you need to know before opting for one.

Common Hidden Charges in EMI Plans

1. Processing Fees

Most lenders and financial institutions charge a processing fee for approving an EMI plan. This fee usually ranges between 0.5% to 3% of the loan amount. While some banks offer zero processing fee schemes, others may charge a significant amount upfront.

2. Interest Charges on No-Cost EMI

The term “No-Cost EMI” is often misleading. In most cases, the discount you get on the product is adjusted against the interest charged by the lender. For example, if a smartphone costs ₹50,000 and the lender charges an interest of 12% per annum, the retailer might adjust the discount to cover the interest, making the EMI plan effectively more expensive than a direct purchase.

3. Prepayment or Foreclosure Charges

If you plan to close your loan before the tenure ends, you might have to pay foreclosure or prepayment charges. These charges can range from 2% to 5% of the remaining loan amount. Some banks offer loans with no foreclosure fees, so it’s important to check the terms beforehand.

4. Late Payment Penalty

Missing an EMI payment can lead to late payment penalties, which vary from bank to bank. These charges can be as high as ₹500 to ₹1,000 per missed installment, along with additional interest on the outstanding amount.

5. Convenience Fees on Credit Card EMIs

If you opt for EMI conversion on your credit card, the bank might charge a convenience fee per transaction. This charge can range between 1% to 2.5% of the EMI amount. Always check your credit card statement to avoid unexpected deductions.

6. Goods and Services Tax (GST)

GST at 18% is applicable on processing fees, interest, and other service charges, further increasing the total cost of the EMI plan. Many consumers overlook this additional tax, leading to a higher effective EMI amount.

How to Avoid Hidden EMI Charges

Here are some smart ways to avoid unnecessary costs when choosing an EMI plan:

• Read the Terms & Conditions – Always go through the loan agreement carefully to understand the charges involved.
• Compare EMI Plans – Use online EMI calculators and compare different lenders before finalizing your EMI plan.
• Check for Hidden Interest – If opting for a “No-Cost EMI,” verify how the discount is being adjusted.
• Pay on Time – Avoid penalties by ensuring timely payments.
• Choose Zero Foreclosure Fee Loans – If you plan to prepay, opt for lenders who do not charge foreclosure fees.

Conclusion

While EMI plans are a convenient way to purchase expensive products, being aware of hidden charges can help you make an informed decision. Always check for processing fees, interest rates, late payment penalties, and other additional costs before committing to an EMI plan. A well-researched decision will not only save you money but also prevent financial stress in the long run.